What is “Estate Planning”?

Essentially, an “estate plan” is your blueprint for what you want to happen to your property when you are deceased. But it is also much more than that; it is the process of putting your personal and financial affairs in order in contemplation of various life events. Estate planning is the creation of one or more legal documents that ensure that an individual’s wishes and goals will be carried out at the time of his or her death or incapacity or both. The goal is to maximize the enjoyment of your estate during your lifetime while providing a plan for the what-ifs in life.

A comprehensive estate plan will provide the management tools needed to address both health and financial concerns, and it will avoid the necessity of a conservatorship or other court-supervised action in the event of incapacity. A comprehensive estate plan will also include provisions for taking care of your loved ones in the event that you are no longer capable of doing so yourself, either because of incapacity or death.

The primary tools for an estate plan are wills, revocable living trusts, durable powers of attorney for financial management, pay-on-death accounts, beneficiary designations, joint tenancies, advance health care directives, guardianship nominations and related documents.

What happens if I become incapacitated or die without an Estate Plan?

Incapacity occurs when a person becomes unable, either physically or mentally, to care for one’s self or one’s finances. A person can become incapacitated in any number of ways, from an injury incurred in a car accident, to mental deterioration from old age. If you become incapacitated without an estate plan, the probate court will step in and appoint a Conservator to care for you. There are two types of Conservators and you may have only one, or both, depending on your circumstances.  A Conservator of the Person is responsible for making sure that you have proper food, clothing, shelter, and health care. A Conservator of the Estate handles your financial matters, such as collecting your income, controlling your assets, and paying your bills.  The Conservator reports to the probate court on an annual basis, and the court controls your finances and assets.

If you die without an estate plan, the probate court will oversee the winding up of your estate pursuant to California statutes, which control what and to whom your assets are distributed.  This process is often time-consuming and your estate will have to pay court costs, as well as statutory attorney fees and possibly executor fees, both of which are calculated based upon the value of your estate, before any assets are distributed to your heirs. Your property is controlled and distributed in accordance with state law, regardless of your individual circumstances.  Furthermore, all probate records are public documents; anyone can review the court file and see what you had and who is getting it.

What is a “Will”?

A “Will” is a revocable legal document that describes who is to receive the property of a person at his or her death and how they are to receive it. A Will has no legal effect until the day you die. This means that if you are in a car accident and severely injured, but still alive, your Will cannot be used to provide for your continued care and maintenance – you would still be appointed a conservator by the court. Rather, a Will says that for everything I own on the day I die, here is who it should go to. A Will can also be used to nominate guardians for minor children. You can also use a Will to create a “testamentary trust,” a trust created upon your death.  Testamentary trusts are subject to court supervision, including annual accountings, throughout the term of such trust.

A common misconception is that a Will avoids probate.  A Will does not avoid probate – it only tells the court who is in charge of administering the estate (the executor) and who you want to leave your assets to (beneficiaries) and how (outright or in trust).  The probate court still oversees the often time-consuming process to assure that your debts are paid and your assets are distributed according to your Will. Therefore, your estate will still incur expensive probate costs, including court costs, statutory attorney fees (and possibly executor fees) which are calculated as a percentage based upon the value of your estate. Furthermore, when your Will is probated, it will become public record and anyone can review the court file to see what you had and who is getting it.

What is a “Living Trust”?

A “living trust” is a legal document created during your lifetime that goes into effect immediately upon signing. A “revocable living trust” is a revocable trust created for a person’s own benefit during his or her lifetime. It is “revocable” because the trust creator (aka, the “settlor”) can amend or revoke the trust at any time and for any reason during his or her lifetime.  It is “living” because it provides for the settlor during his or her lifetime.  Furthermore, if the settlor becomes incapacitated during his or her lifetime, the person named in the trust as the successor trustee would take over trust administration for the settlor. If all of the settlor’s assets are in the trust, then it allows the successor trustee to manage the settlor’s assets without court intervention and the appointment of a conservator. Upon the settlor’s death, the trust becomes irrevocable and the trust is distributed, or continuously administered, according to its terms.

What is a “Financial Power of Attorney”?

A “financial power of attorney” is a legal document in which you name another person to act as your “attorney-in-fact” for purposes of asset management. The attorney-in-fact is authorized to act on behalf of the principal (i.e., the person executing the power of attorney) with respect to the powers given in the power of attorney. The power of attorney can be all-encompassing – I give this person the authority to act on my behalf for all financial purposes – or it can be very limited and tailored to specific situations – I give this person the authority to do this specific act. For example, if you are traveling out of the country for a few months, you may wish to designate someone as your attorney-in-fact to pay your bills while you are away.

What is an “Advance Health Care Directive”?

An “advance health care directive” is a legal document in which you name an agent to make medical decisions for yourself in the event that you become incapable of giving informed consent. The person named as your agent is authorized to work with your physician to determine what type of care you should receive while you are unable to speak for yourself.  You may also nominate a person to serve as the conservator of your person and/or your estate in the event that a conservator is to be appointed. By nominating a conservator in an advance health care directive, you have control over yourself and your estate at a time when you are able to clearly make that determination, rather than the court at a time when you are unable to do so.